10-K
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d96991d10k.htm
FORM 10-K
Form 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
Commission File Number 001-31895
ODYSSEY MARINE EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
205 S. Hoover Blvd, Suite 210, Tampa FL 33609
(Address and zip code of principal executive offices)
(813) 876-1776
(Registrant’s telephone number including area code)
Securities registered pursuant Section 12(b) of the Act:
Common Stock, $.0001 par value OMEX NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ☐ No ☒
Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
The aggregate market value of the
8.9 million shares of voting stock held by non-affiliates of Odyssey Marine Exploration, Inc. as of June 30, 2020, was approximately $40.8 million. As of March 8, 2021, the Registrant had
12,591,084 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Form 10-K is incorporated by reference to the
Company’s Definitive Proxy Statement for the Registrant’s Annual Meeting of Stockholders to be held on June 14, 2021.
Table of Contents
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 10
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Mine Safety Disclosures 10
PART II
Item 6. Selected Financial Data 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
PART III
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11. Executive Compensation 27
Item 14. Principal Accounting Fees and Services 27
PART IV
Item 15. Exhibits and Financial Statement Schedules 28
SIGNATURES 75
EXHIBITS INDEX 76
Table of Contents
As used in this Annual Report on Form 10-K,
“we,” “us,” “our company” and “Odyssey” mean Odyssey Marine Exploration, Inc. and our subsidiaries, unless the context indicates otherwise.
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. The statements regarding Odyssey Marine Exploration, Inc. and its subsidiaries contained in this report that are not
historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes,”
“plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such
forward-looking statements.
Important factors known to us that could cause such material differences are identified in our “RISK
FACTORS” in Item 1A and elsewhere in this report. Accordingly, readers of this Annual Report on Form 10-K should consider these factors in evaluating an investment in our securities and are cautioned
not to place undue reliance on the forward-looking statements contained herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information or future events unless otherwise
specifically indicated, except as required by law.
ITEM 1. BUSINESS
Overview
Odyssey Marine Exploration, Inc.
discovers, validates and develops high value seafloor resources in an environmentally responsible manner, providing access to critical resources that can transform societies and economies for generations to come.
The company has a diversified mineral portfolio that includes projects controlled by us and other projects in which we are a minority owner
and service provider. In addition, our team is continually working to add new projects to the portfolio by identifying potential new assets through a proprietary Global Prospectivity Program leading to the acquisition of appropriate rights.
Our development focus is on projects that can meet stringent standards for environmental responsibility and sustainability while
unlocking benefits for the host country. Environmental protection remains at the forefront of the strategic and tactical decision-making processes in all our work.
Each project in the portfolio is advanced along a defined development path, decreasing risk and increasing value along the way. These steps
may include, but are not limited to, verification and quantification of the mineral asset, collection of baseline environmental data essential for environmental permitting, environmental impact studies and reports, design and verification of
extraction systems and definition and verification of commercial programs. Odyssey may elect to sell equity in individual projects to fund continued advancement of the project.
For nearly 30 years, we have been deploying cutting-edge ocean technology and processes at depths up to 6,000 meters, under the direction of
some of the industry’s most skilled and successful ocean exploration professionals, scientists, and environmental specialists.
Importance of
Seabed Mineral Exploration
There is growing global demand for critical mineral resources to power the green economy, feed the
world’s growing population and provide vital infrastructure. Land based deposits of cobalt, manganese, rare earth minerals, phosphorite, gold, silver, copper and zinc are being depleted.
As the worldwide population continues to grow, it is necessary to explore additional and alternative sources of these much-needed materials.
Subsea mineral deposits can provide these critical resources with less social and environmental impact. We have the expertise and
technology to find and access these deposits and to prepare the project for extraction in an economically feasible and environmentally sensitive way.
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Benefits of Ocean Mineral Resource Development
Some of the benefits of mineral resource development include:
Considering the benefits of subsea mineral resource
extraction, we are convinced that in the future, deep-sea mining will be the best practice for responsible provision of critical resources required worldwide. Odyssey is taking the lead in preparing for this
future through the validation and development of environmentally and socially responsible seafloor mineral projects.
Mineral and Offshore Services
We provide specialized mineral exploration, project development and marine services to clients (subsidiary companies, other companies
and/or governments). As our business is focused on the development of a diversified portfolio of subsea resources, we may elect to receive equity for the provision of our services on select mineral projects. We have an extensive history conducting
deep-ocean projects down to 6,000 meters in depth including deep-ocean resource explorations, ship and airplane wreck explorations, archaeological recovery and conservation and insurance documentation and apply this experience and expertise to
advance our project portfolio.
Operational Projects and Status
We focus on projects that can meet stringent standards for environmental responsibility while unlocking benefits for the host community and
country.
Our subsea project portfolio contains multiple projects in various stages of development throughout the world and across
different mineral resources. We are regularly adding new projects through the development of new deposits, acquisition of mineral rights/deposits and through a leveraged contracting model, which allows the company to earn equity in deep-sea mineral projects.
With respect to mineral deposits, SEC Industry Guide 7 outlines the
Securities and Commission’s basic mining disclosure policy and what information may be disclosed in public filings. The SEC has adopted amendments to the property disclosure requirements for mining registrants that must be complied with for the
full fiscal year beginning after January 1, 2021.
Although Odyssey has a variety of projects in various stages of development, only
projects with material operational activity in the past 12 months are included below.
ExO Phosphate Project:
The “Exploraciones Oceanicas” Phosphate Project is a rich deposit of phosphate sands located
70-90 meters deep within Mexico’s Exclusive Economic Zone. This deposit contains a large amount of high-grade phosphate rock that can be extracted on a financially attractive basis (essentially a dredging
operation) and that the product will be attractive to Mexican and other world producers of fertilizers and can provide important benefits to Mexico’s agricultural development.
The deposit lies within an exclusive mining concession licensed to the Mexican company Exploraciones Oceánicas S. de R.L. de CV (ExO).
Oceanica Resources, S. de R.L., a Panamanian company (“Oceanica”) owns 99.99% of ExO and Odyssey owns 56.29% of Oceanica through Odyssey Marine Enterprises, Ltd., a wholly owned Bahamian company (“Enterprises”).
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In 2012, ExO was granted a 50-year mining license
by Mexico (extendable for another 50 years at ExO’s option) for the deposit that lies 25-40 km offshore in Baja California Sur. An
NI 43-101 compliant report was completed on the deposit in 2014 and has been periodically updated.
The company spent more than three years preparing an environmentally sustainable development plan with the assistance of experts in marine
dredging and leading environmental scientists from around the world. Key features of the environmental plan included:
• No chemicals would be used in the dredging process or released into the sea.
Notwithstanding the factors stated above, in April 2016 the Mexican Ministry of the Environment and Natural Resources (SEMARNAT)
unlawfully rejected the permission to move forward with the project.
ExO challenged the decision in Mexican Federal court and in March
2018, the Tribunal Federal de Justicia Administrativa (TFJA), an 11-judge panel, ruled unanimously that SEMARNAT denied the application in violation of Mexican law and ordered the agency to re-take their decision. Just prior to the change in administration later in 2018, SEMARNAT denied the permit a second time in defiance of the court. ExO is once again challenging the unlawful decision of the
Peña Nieto administration before the TFJA.
In addition, in April 2019, we filed a NAFTA Claim against Mexico to protect our
shareholders’ interests and significant investment in the project.
The claim seeks compensation of over $2 billion on the
basis that SEMARNAT’s wrongful repeated denial of authorization has destroyed the value of its investment in the country and is in violation of the following provisions of NAFTA:
• Article 1102. National Treatment.
• Article 1105. Minimum Standard of Treatment; and
• Article 1110. Expropriation and compensation.
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The First Memorial in the NAFTA case was filed in September 2020. It is supported
by documentary evidence and 20 expert reports and witness statements. In summary, this evidence includes:
A public version of the Notice of Intent, Notice of Arbitration and the First Memorial Filing are available on our website
at www.odysseymarine.com.com/nafta.
The NAFTA hearing is scheduled to take place in January 2022 unless settled
earlier by the parties.
On June 14, 2019, Odyssey executed an agreement that provided up to $6.5 million in funding for prior,
current and future costs of the NAFTA action. On January 31, 2020 this agreement was amended and restated, as a result of which the $6.5 million availability increased to $10.0 million (See NOTE H – Litigation Financing). In
December 2020, Odyssey announced it secured an additional $10 million from the funder to aid in our NAFTA case. The funder will not have any right of recourse unless the environmental permit is awarded or if proceeds are received.
LIHIR Gold Project:
The
exploration license for the Lihir Gold Project covers as subsea area that contains at least five prospective gold exploration targets in two different mineralization types: seamount-related epithermal and modern placer gold. Two subaqueous debris
fields within the area are adjacent to the terrestrial Ladolam Gold Mine and are believed to have originated from the same volcanogenic source. The resource lies 500-2,000 meters deep in the Papua New Guinea
Exclusive Economic Zone off the coast of Lihir Island, adjacent the location of one of the world’s largest know terrestrial gold deposits.
We own 79.9% of Bismarck Mining Corporation, Ltd, the Papua New Guinea company that holds the exploration license for the project.
Previous exploration expeditions in the license area, including a survey conducted by Odyssey, indicate a polymetallic resource with
commercially viable gold content likely exists.
Odyssey is set to execute its Exploration Plan for the Lihir Gold Project to validate and
quantify the precious and base metal content of the prospective resource. We have met with local regulatory authorities, specialists in local mining, environmental legal experts, and logistics support service companies in PNG to establish baseline
business functions essential for a successful program to support upcoming marine operations in the license area. Offshore validation work is being planned for 2021.
A robust Environmental Management Plan and Monitoring Plan is being developed and will be implemented to ensure that environmental decisions
are placed at the forefront of the project. Bismarck and Odyssey value the environment and respect the interests and people of Papua New Guinea and Lihir and are committed to transparent sharing of all environmental data collected during the
exploration program.
The company is planning environmental surveys and studies accruing to environmental permitting in compliance with
Papua New Guinea’s requirements as well as the development of an EIA (Environmental Impact Assessment) that meets the International Seabed Authority (ISA) recommendations. This will define the expected environmental effects of a full-scale
extraction operation with the goal of minimizing impacts.
Future mining is dependent on the characterization of any present resources
during exploration.
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CIC Project:
Odyssey is a member of the CIC Consortium, which is seeking an exploration license in an island nation’s Exclusive Economic
Zone. The CIC Consortium was founded and is led by Odyssey co-founder and former CEO, Greg Stemm, and includes Royal Boskalis Westminster NV and Odyssey Marine Exploration.
Through a wholly owned subsidiary, Odyssey Marine Minerals LLC, Odyssey has already earned 16 million shares (representing approximately
12.6% of current outstanding shares of this project) through the provision of services related to resource assessment, project planning, research and project management, and Odyssey has an option to acquire an additional 4 million shares.
Odyssey receives cash and equity for services rendered to this venture, see NOTE G.
Legal and Political Issues
Odyssey works
with several leading international maritime lawyers and policy experts to constantly monitor international legal initiatives that might affect our projects.
To the extent that we engage in mineral exploration or marine activities in the territorial, contiguous or exclusive economic zones of
countries, we work to comply with verifiable applicable regulations and treaties.
We believe there will be increased interest in the
recovery of subsea minerals throughout the oceans of the world. We are uniquely qualified to provide governments and international agencies with knowledge and skills to help manage these resources.
Related to mineral exploration, we evaluate the political climate and specific legal requirements of any areas in which we are working. We may
partner with third parties who have unique industry experience in specific geographical areas to assist with navigation of the regulatory landscape.
Competition
We conduct mineral
exploration on both shallow and deep-sea terrains. There are several companies that publicly identify themselves as engaged in aspects of deep-ocean mineral exploration or mining, including Nautilus Minerals
(NUS.TO), Neptune Minerals, Deep Green Resources, Inc which recently combined with the Sustainable Opportunities Acquisition Corporation to go public as The Metals Company, and Chatham Rock Phosphate, Ltd. (CRP.NZ) as well as countries that are
evaluating options to mine deep-ocean mineralized materials. As our mineral exploration business plan includes partnering with others in the industry, we view these entities as potential partners rather than pure competitors. As mineral rights are
generally granted on an exclusive basis for a specific area or tenement, once licenses are granted, we do not anticipate any competitive intrusion on those areas. It is possible that one of these companies or some currently unknown group may secure
licenses on an area desired by us or one of our partners; but since exploration work does not start until licenses are secured, we do not believe that competition from one or more of these entities, known or unknown, would materially affect our
operating plan or alter our current business strategy. For offshore mineral exploration, there are providers of vessels and equipment that could be competitors or partners for certain projects. These companies generally service the oil, gas and
telecom industries with survey capabilities. We view these companies as potential strategic partners or services providers for our projects.
Cost of
Environmental Compliance
With the exception of marine operations, our general business operations do not expose us to environmental
risks or hazards. We carry insurance that provides a layer of protection in the event of an environmental exposure resulting from the operation of vessels we may utilize. The cost of such coverage is not material on an annual basis. Our seabed
mineral business is currently in the exploration and validation phase and has thus not exposed us to any significant environmental risks or hazards, other than those which are standard to basic marine operations.
Executive Officers of the Registrant
The
names, ages and positions of all the executive officers of the Company as of March 1, 2021 are listed below.
Mark D. Gordon (age 60)
has served as Chief Executive Officer since October 1, 2014, and was appointed to the Board of Directors in January 2008. Mr. Gordon also served as President from October 2007 to June 2019, when he was appointed Chairman of the Board.
Previously, Mr. Gordon served as Chief Operating Officer since October 2007 and as Executive Vice President of Sales and Business Development since January 2007 after joining Odyssey as Director of Business Development in June 2005. Prior to
joining Odyssey, Mr. Gordon owned and managed four different ventures (1987-2003).
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Jay A. Nudi, CPA (age 57) has served as Chief Financial Officer since June 2017, as
Principal Accounting Officer since January 2006 and joined Odyssey as Controller in May 2005. Mr. Nudi previously assumed the additional responsibilities of Interim Chief Financial Officer on June 8, 2016 and of Treasurer in May 2010.
Prior to joining Odyssey, Mr. Nudi served as Controller for The Axis Group in Atlanta (2003-2004).
John D. Longley, Jr. (age 54) has
served as Chief Operating Officer since October 1, 2014. On June 3, 2019, Mr. Longley was appointed President. Previously Mr. Longley served as Executive Vice President of Sales and Business Development since February 2012.
Mr. Longley was originally the Director of Sales and Business Operations when he joined the Company in May 2006.
Laura L. Barton
(age 58) was appointed as Chief Business Officer in March 2021 and was elected to the Board of Directors in June 2019 and has served as Corporate Secretary since June 2015. She formerly served as Vice President and Director of Corporate
Communications from November 2007 to June 2012 and Executive Vice President and Director of Communications from 2012 until 2021. Ms. Barton previously served as Director of Corporate Communications and Marketing for Odyssey since July 2003.
Ms. Barton was previously President of LLB Communications, a marketing and communications consulting company whose customers included a variety of television networks, stations and distributors and the Company (1994-2003).
Employees
As of December 31, 2020,
we had 14 full-time employees, most working from our corporate offices in Tampa, Florida. Additionally, we contract with specialized technicians to perform technical marine survey and recovery operations and from time to time hire subcontractors and
consultants to perform specific services.
Internet Access
Odyssey’s Forms 10-K,10-Q,8-K and all amendments to those reports are available without charge through Odyssey’s web site on the Internet as soon as reasonably practicable after they are electronically filed with, or furnished to,
the Securities and Exchange Commission, www.sec.gov. They may be accessed as follows: www.odysseymarine.com (Investors/Financial Information Link).
ITEM 1A. RISK FACTORS
You should carefully consider the following factors, in addition to the other information in this Annual Report on Form 10-K, in evaluating our company and our business. Our business, operations and financial condition are subject to various risks. The material risks are described below and should be carefully considered in
evaluating Odyssey or any investment decision relating to our securities. This section is intended only as a summary of the principal risks. If any of the following risks actually occur, our business, financial condition, or operating results could
suffer. If this occurs, the trading price of our common stock could decline, and you could lose all or part of the money you paid to buy our common stock.
Our business involves a high degree of risk.
An investment in Odyssey is extremely speculative and of exceptionally high risk. With respect to mineral exploration projects, there are
uncertainties with respect to the quality and quantity of the material and their economic feasibility, the price we can obtain for the sale of the deposit or the ore extracted from the deposit, the granting of the necessary permits to operate,
environmental safety, technology for extraction and processing, distribution of the eventual ore product, and funding of necessary equipment and facilities. In projects where Odyssey takes a minority ownership position in the company holding the
mining rights, there may be uncertainty as to that company’s ability to move the project forward.
The research and data we use
may not be reliable.
The success of a mineral project is dependent to a substantial degree upon the research and data we or the
contracting party have obtained. By its very nature, research and data regarding mineral deposits can be imprecise, incomplete, outdated, and unreliable. For mineral exploration, data is collected based on a sampling technique and available data may
not be representative of the entire ore body or tenement area. Prior to conducting off-shore exploration, we typically conduct on-shore research. There is no guarantee
that the models and research conducted onshore will be representative of actual results on the seafloor. Offshore exploration typically requires significant expenditures, with no guarantee that the results will be useful or financially rewarding.
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Operations may be affected by natural hazards.
Underwater exploration and recovery operations are inherently difficult and dangerous and may be delayed or suspended by weather, sea
conditions or other natural hazards. Further, such operations may be undertaken more safely during certain months of the year than others. We cannot guarantee that we, or the entities we are affiliated with, will be able to conduct exploration,
sampling or extractions operations during favorable periods. In addition, even though sea conditions in a particular search location may be somewhat predictable, the possibility exists that unexpected conditions may occur that adversely affect our
operations. It is also possible that natural hazards may prevent or significantly delay operations. Seabed mineral extraction work may be subject to interruptions resulting from storms that adversely affect the extraction operations or the ports of
delivery. Project planning considers these risks.
We may be unable to establish our rights to resources or items we discover or
recover.
We may discover potentially valuable seabed mineral deposits, but we may be unable to get title to the deposits or get
the necessary governmental permits to commercially extract the minerals. Mineral deposits may be in controlled waters where the policies and laws of a certain government may change abruptly, thereby adversely affecting our ability to operate in
those zones. We have a process for evaluating this risk in our proprietary Global Prospectivity program.
The market for any objects
or minerals we recover is uncertain.
During the time between the date a mineral deposit is discovered and the date the first
extracted minerals are sold, world and local prices for the mineral may fluctuate drastically and thereby change the economics of the mineral project.
We could experience delays in the disposition or sale of minerals or recovered objects.
It may take significant time between the date a mineral deposit is discovered and the date the first extracted minerals are sold. Stakes in the
mineral deposits can potentially be sold at an earlier date, but there is no guarantee that there will be readily available buyers at favorable competitive prices.
Legal, political or civil issues could interfere with our marine operations.
Legal, political or civil issues of governments throughout the world could restrict access to our operational marine sites or interfere with
our marine operations or rights to seabed mineral deposits. In many countries, the legislation covering ocean exploration lacks clarity. As a result, when we are conducting projects in certain areas of the world for our own account or on our behalf
of a contracting party, we may be subjected to unexpected delays, requests, and outcomes as it works with local governments to define and obtain the necessary permits and to assert its claims over assets on the seafloor bottom. Our vessel,
equipment, personnel and or cargo could be seized or detained by government authorities. We may have to work with different units of a government, and there may be a change of government representatives over time. This may result in unexpected
changes or interpretations in government contracts and legislation.
We may be unable to get permission to conduct exploration,
excavation, or extraction operations.
It is possible we will not be successful in obtaining the necessary permits to conduct
exploration or excavation and extraction operations. In addition, permits we obtain may be revoked or not honored by the entities that issued them. In addition, certain governments may develop new permit requirements that could delay new operations
or interrupt existing operations.
Changes in our business strategy or restructuring of our businesses may increase our costs or
otherwise affect the profitability of our businesses.
As changes in our business environment occur, we may need to adjust our
business strategies to meet these changes or we may otherwise find it necessary to restructure our operations or particular businesses or assets. When these changes or events occur, we may incur costs to change our business strategy and may need to
write down the value of assets or sell certain assets. In any of these events our costs may increase, and we may have significant charges associated with the write-down of assets. Discontinuing the use of a multi-year charter of a ship may result in
large one-time costs to cover any penalties or charges to put the ship back into its original condition.
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We may be unsuccessful in raising the necessary capital to fund operations and capital
expenditures.
Our ability to generate cash inflows is dependent upon our ability to provide mineral exploration and development
services to our subsidiaries and other subsea mineral companies or monetize mineral rights. However, we cannot guarantee that the sales and other cash sources will generate sufficient cash inflows to meet our overall cash requirements. If cash
inflows are not sufficient to meet our business requirements, we will be required to raise additional capital through other financing activities. While we have been successful in raising the necessary funds in the past, there can be no assurance we
can continue to do so in the future.
We depend on key employees and face competition in hiring and retaining qualified employees.
Our employees are vital to our success, and our key management and other employees are difficult to replace. We currently do not
have employment contracts with the majority of our key employees. We may not be able to retain highly qualified employees in the future which could adversely affect our business.
We may continue to experience significant losses from operations.
We have experienced a net loss in every fiscal year since our inception except for 2004. Our net losses were $14.8 million in 2020,
$10.4 million in 2019 and $5.2 million in 2018. Even if we do generate operating income in one or more quarters in the future, subsequent developments in our industry, customer base, business or cost structure or an event such as
significant litigation or a significant transaction may cause us to again experience operating losses. We may not become profitable for the long-term, or even for any quarter.
Technological obsolescence of our marine assets or failure of critical equipment could put a strain on our capital requirements or
operational capabilities.
We employ state-of-the-art technology including side-scan sonar, magnetometers, ROVs, and other advanced science and technology to perform seabed mineral exploration and to locate and recover shipwrecks at
depths previously unreachable in an economically feasible manner. Although we try to maintain back-ups on critical equipment and components, equipment failures may require us to delay or suspend operations.
Also, while we endeavor to keep marine equipment in excellent working condition and current with all available upgrades, technological advances in new equipment may provide superior efficiencies compared to the capabilities of our existing
equipment, and this could require us to purchase new equipment which would require additional capital.
We may not be able to
contract with clients or customers for marine services or syndicated projects.
In the past, from time to time, we have earned
revenue by chartering out vessels, equipment and crew and providing marine services to clients or customers. Even if we do contract out our services, the revenue may or may not be sufficient to cover administrative overhead costs. While the
operational results of these syndicated projects are generally successful, the clients or customers may not be willing or financially able to continue with syndicated projects of this type in the future. Failure to secure such revenue producing
contracts in the future may have a material impact on our revenue and operating cash flows. We may take payment for these services in the form of cash, shares in the client’s company, or a financial interest in the tenement areas. There is no
guarantee that the non-cash payment for our services will ever be able to be monetized or be used by Odyssey.
The issuance of shares at conversion prices lower than the market price at the time of conversion and the sale of such shares could
adversely affect the price of our common stock.
Some of our outstanding shares may have been acquired from time to time upon
conversion of convertible notes at conversion prices that are lower than the market price of our common stock at the time of conversion. In the past, Odyssey has issued debt obligations that could be converted into common shares at prices below the
current market price. Conversion of the notes at conversion prices that are lower than the market price at the time of conversion and the sale of the shares issued upon conversion could have an adverse effect upon the market price of our common
stock.
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Investments in subsea mineral exploration companies may prove unsuccessful.
We have invested in marine mineral companies that to date are still in the exploration phase and have not begun to earn revenue
from operations. We may or may not have control or input on the future development of these businesses. There can be no assurance that these companies will achieve profitability or otherwise be successful in capitalizing on the mineralized materials
they intend to exploit.
We may be subject to short selling strategies.
Short sellers of our stock may be manipulative and may attempt to drive down the market price of our common stock. Short selling is the
practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from
a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short
seller’s best interests for the price of the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business
prospects to create negative market momentum and generate profits for themselves after selling a stock short. Although traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create
negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s
credibility, strategy and veracity by means of so-called “research reports” that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts. These
short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers who have limited trading volumes and are susceptible to higher volatility levels than
large-cap stocks, can be particularly vulnerable to such short seller attacks. These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in
the U.S., are not subject to certification requirements imposed by the Securities and Exchange Commission and, accordingly, the opinions they express may be based on distortions or omissions of actual facts or, in some cases, fabrications of facts.
In light of the limited risks involved in publishing such information, and the enormous profit that can be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is more likely than
not that disclosed short sellers will continue to issue such reports.
Some of our equipment or assets could be seized or we may be
forced to sell certain assets.
We have pledged certain assets, such as equipment and shares of subsidiaries, as collateral under
our loan agreements. Some suppliers have the ability to seize some of our assets if we do not make timely payments for the services, supplies, or equipment that they have provided to us. If we were unable to make payments on these obligations, the
lender or supplier may seize the asset or force the sale of the asset. The loss of such assets could adversely affect our operations. The sale of the asset may be done in a manner and under circumstances that do not provide the highest cash value
for the sale of the asset.
We could be delisted from the NASDAQ Capital Market.
Our common stock is listed on the NASDAQ Capital Market, which imposes, among other requirements, a minimum bid requirement. The closing bid
price for our common stock must remain at or above $1.00 per share to comply with NASDAQ’s minimum bid requirement for continued listing. If the closing bid price for our common stock is less than $1.00 per share for 30 consecutive business
days, NASDAQ may send us a notice stating we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else NASDAQ may make a determination to delist our common stock. Another requirement for continued listing on
the NASDAQ Capital Market is to maintain our market capitalization above $35.0 million.
Failure by the company to maintain
compliance with the above-mentioned and other NASDAQ continued listing requirements may lead to the delisting of the company from the NASDAQ Capital Market. Delisting from the NASDAQ Capital Market could make trading our common stock more difficult
for investors, potentially leading to declines in our share price and liquidity. If our common stock is delisted by NASDAQ, our common stock may be eligible to trade on an
over-the-counter quotation system, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common
stock. We cannot assure you that our common stock, if delisted from the NASDAQ Capital Market, will be listed on another national securities exchange or quoted on an over-the counter quotation system.
Our insurance coverage may be inadequate to cover all of our business risks.
Although we seek to obtain insurance for some of our main operational risks, there is no guarantee that the insurance policies that we have are
sufficient, that they will be in place when needed, that we will be able to obtain insurance coverage
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when desired, that insurance will be available on commercially attractive terms, or that we will be able to anticipate the risks that need to be insured. For example, although we may be able to
obtain War Risk coverage for a project at a specific date and location, such insurance may be unavailable at other times and locations. Although we may be able to insure our marine assets for certain risks such as certain possible loss or damage
scenarios, we may lack insurance to cover against government seizure or detention of our certain marine assets. Permanent loss or temporary loss of our marine assets and the associated business interruption without commensurate compensation from an
insurance policy could severely impact the financial results and operational capabilities of the company.
We may be exposed to
cyber security risks.
We depend on information technology networks and systems to process, transmit and store electronic
information and to communicate among our locations around the world and among ourselves within our company. Additionally, one of our significant responsibilities is to maintain the security and privacy of our confidential and proprietary information
and the personal data of our employees. Our information systems, and those of our service and support providers, are vulnerable to an increasing threat of continually evolving cybersecurity risks. Computer viruses, hackers and other external
hazards, as well as improper or inadvertent staff behavior could expose confidential company and personal data systems and information to security breaches. Techniques used to obtain unauthorized access or cause system interruption change frequently
and may not immediately produce signs of intrusion. As a result, we may be unable to anticipate these incidents or techniques, timely discover them, or implement adequate preventative measures. With respect to our commercial arrangements with
service and support providers, we have processes designed to require third-party IT outsourcing, offsite storage and other vendors to agree to maintain certain standards with respect to the storage, protection and transfer of confidential, personal
and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a vendor’s employee or agent, the breakdown of a vendor’s data
protection processes, or a cyber-attack on a vendor’s information systems or our information systems.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We maintain our corporate offices in Tampa, Florida where we lease approximately 6,000 square feet of office space. We currently do not own any
buildings or land. We believe our current leased facility is sufficient for our foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a defendant in any litigation. From time to time in the ordinary course of business, we may be subject to
or may assert a variety of claims or lawsuits. We are not a party to any litigation as a defendant where a loss contingency is required to be reflected in our consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common
stock is listed on the NASDAQ Capital Market under the symbol OMEX. The following table sets forth the high and low sale prices for our common stock during each quarter presented.
Price
High Low
Quarter Ended
Quarter Ended
Approximate Number of Holders of Common Stock
The number of record holders of our common stock at February 11, 2021 was approximately 150. This does not include approximately 7,300
stockholders that hold their stock in accounts included in street name with broker/dealers.
Dividends
Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. No dividends have been
declared with respect to our common stock and none are anticipated in the foreseeable future.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities of the Company’s common stock during the year ended December 31, 2020.
Issuer Purchases of Equity Securities
There were no repurchases of shares of the Company’s common stock during the year ended December 31, 2020.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data, which should be read in conjunction with the Company’s Consolidated Financial
Statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
appearing elsewhere in this Form 10-K. The selected financial data have been derived from the Company’s audited financial statements.
Years Ended December 31,
Results of Operations
Cash dividends per share — — — — —
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Years Ended December 31,
Financial Position
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to provide a narrative of our financial results and an evaluation of our
financial condition and results of operations. The discussion should be read in conjunction with our consolidated financial statements and notes thereto. A description of our business is discussed in Item 1 of this report which contains an
overview of our business as well as the status of our ongoing project operations.
Results of Operations
The dollar values discussed in the following tables, except as otherwise indicated, are approximations to the nearest $1,000,000 and therefore
do not necessarily sum in columns or rows. For more detail refer to the Financial Statements and Supplementary Data in Item 8. The tables identify years 2020, 2019 and 2018, all of which included a twelve-month period ended December 31.
2020 Compared to 2019
Marketing, general and administrative 3.6 5.5 (1.7 ) 32 %
Total operating expenses $ 14.7 $ 13.4 $ 1.3 9 %
Total other income (expense) $ (8.5 ) $ (5.2 ) $ 3.3 64 %
Income tax benefit (provision) $ 0.0 $ 0.0 $ 0.0 0 %
Non-controlling interest $ 6.3 $ 5.1 $ 1.2 24 %
Revenue
The revenue generated in each period was a result of performing oceanic research, project administration and search and recovery operations for
our customers and related parties. Total revenue decreased by $1.0 million in 2020 as compared to 2019. The $1.0 million decrease is comprised of a $1.4 million reduction resulting from the long-term project we were engaged on since
2018 having reached its life expectancy during this period offset in part by an increase of $0.4 million increase in marine exploration services.
Cost and Expenses
Marketing, general and
administrative expenses primarily include all costs within the following departments: Executive, Finance & Accounting, Legal, Information Technology, Human Resources, Marketing & Communications, Sales and Business Development.
Marketing, general and administrative expense decreased $1.7 million to $3.6 million in 2020 compared to $5.5 million in 2019. The key items contributing to this $1.7 million decrease was
a non-cash decrease of share-based compensation of $0.2 million and a net reduction of $1.2 in employee incentives and employee and director related compensation. The $1.2 million reduction
was primarily due to the reduction of the discretionary incentive reserve resulting from management’s decision to not pay discretionary incentives until appropriate. We also had a $0.4 million reduction in professional corporate services
which includes a reduction of approximately $0.3 million in maritime legal services associated with the HMS Victory as well as fees related to legal and in our annual audit function. These decreases were offset in part by a
$0.1 million increase split between governmental fees and our corporate liability insurance.
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Operations and research expenses are primarily focused
around deep-sea mineral exploration which includes minerals research, scientific services, marine operations and project management. Operations and research expenses increased by $3.0 million
from 2019 to 2020 primarily as a result of the following items: (i) a $4.3 million increase in financed professional fees, legal fees, and other expenses directly associated with our NAFTA litigation pursuit, (ii) a $1.3 million
decrease in marine services operating technical labor costs, (iii) a $0.4 million increase in our concession permit fees for our Mexican subsidiary and (iv) a $0.4 million decrease in our general operational overhead which
includes items such as travel related, insurances, depreciation and rent.
Other Income or Expense
Other income and expense was $8.5 and $5.2 million in net expenses for 2020 and 2019, respectively, resulting in a net expense increase of
$3.3 million. This variance was primarily attributable to an increase in interest expense of $3.5 million primarily from our litigation financing agreement (NOTE H), a reduction in debt discount accretion in the amount of
$1.0 million, a $0.4 million incremental expense due to the fair value accounting of our hybrid debt instrument (NOTE H), the prior year included an expense of $0.9 million related to the fair value accounting for a warrant inducement
related to debt refinancing, a $0.5 million current year expense related to debt extinguishment accounting related to a loan extension, and $0.8 million of other income in 2019 attributable to the extinguishment of deferred revenue that
was caused by the 2019 cancelation of the HMS Sussex contract.
Income Taxes and
Non-Controlling Interest
We did not incur any taxes in 2020, 2019 or 2018.
Starting in 2013, we became the controlling shareholder of Oceanica. Our financial statements thus include the financial results of Oceanica
and its subsidiary. Except for intercompany transactions that are eliminated upon consolidation, Oceanica’s revenues and expenses, in their entirety, are shown in our consolidated financial statements. The share of Oceanica’s net losses
corresponding to the equity of Oceanica not owned by us is subsequently shown as the “Non-Controlling Interest” in the consolidated statements of operations. The
non-controlling interest adjustment for 2020 was $6.3 million as compared to $5.1 million for 2019. The administrative support has been ongoing in support of the legal process in obtaining the
environmental application for our Mexican subsidiary. This increase was mainly attributable to the compounding debt interest on our Mexican subsidiary’s balance sheet.
Liquidity and Capital Resources
Summary of Cash Flows:
Net cash (used) by operating activities $ (9,287 ) $ (5,444 )
Net cash provided by investing activities — (16 )
Net cash provided by financing activities 15,237 2,876
Net increase (decrease) in cash and cash equivalents $ 5,950 $ (2,584 )
Beginning cash and cash equivalents 213 2,797
Ending cash and cash equivalents $ 6,163 $ 213
Discussion of Cash Flows
Net cash used by operating activities for 2020 was $9.3 million. This represents a $3.8 million increase in use of funds when
compared to the use of $5.4 million in the same period of 2019. The net cash used by operating activities reflected a net loss before non-controlling interest of $21.1 million offset in
part by non-cash items of $1.0 million which primarily includes loss on debt extinguishment of $0.8 million, investment in unconsolidated entity of $0.9 million, the fair-value of
hybrid-debt accounting of $0.7 million and other which includes items such as depreciation and debt discount accretion for $0.4 million. Other operating activities resulted in an increase in working capital of $2.4 million compared to
2019. Changes to accrued expenses, accounts receivable, accounts payable and other assets in 2020 comprised the $2.4 million. The December 31, 2020 accounts payable balance of $4.1 million is comprised of: 1) $3.3 million which
pertains to four accounts. These accounts are not related to current operations and are not expected to be settled with cash, 2) $0.5 million for our NAFTA litigation and will be funded from our litigation financing facility and 3)
$0.3 million of standard operating payables that will be settled in the normal course of business.
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Net cash used by operating activities for 2019 was $5.4 million, an increase of
$1.0 million compared to the same period in 2018. Net cash used by operating activities reflected a net loss before non-controlling interest of $(15.5) million offset in part by non-cash items of $1.7 million which primarily included depreciation and amortization of $0.1 million, note payable interest accretion of $0.8 million, equity based compensation of $0.8 million
and deferred income amortization of $(0.8) million as well as a noncash use of $(0.7) million for an investment in an unconsolidated entity, loss on debt extinguishment of $0.3 million, a loss of $0.3 million on the debt fair value option
and a $0.9 million loss due to a debt modification inducement. Other operating activities resulted in an increase in working capital of $8.4 million. Changes to accrued expenses, accounts receivable, accounts payable and other assets in
2019 comprised the $8.4 million.
There were no cash flows from investing activities in 2020.
Cash flows used by investing activities for 2019 were $0.01 million compared to $1.0 million provided by for in 2018. The same
period during 2018 includes a payment of $1.0 million from Magellan for the purchase of certain marine assets, see NOTE E.
Cash
flows provided by financing activities for 2020 were $15.2 million, which represented a $12.3 million increase over the same period in 2019 of $2.9 million. The current period $15. 2 million was comprised of funds received from
our NAFTA litigation financing and funds received from the 37 North agreement (NOTE H). We also participated and received funds from the Small Business Administration (SBA) programs for the Payroll Protection Program (PPP) and the Emergency Injury
Disaster Loan (EIDL) (NOTE H). These debt proceeds of $3.6 million were offset by $0.2 million of repayments of financed obligations. In August 2020 we sold 2.5 million of our common shares
for net-proceeds of $11.3 million (see NOTE L). During December 2020, we sold $800,000 of new equity in one of our controlled subsidiaries to an existing shareholder of that subsidiary.
Cash flows provided by financing activities for 2019 were $2.9 million which represented $2.8 million of funds received from our
NAFTA litigation financing, and $0.5 million debt financing offset by $0.3 million of repayments of financed obligations. For the same period in 2018, we borrowed the final tranche of $0.4 million from MINOSA, increased our note
payable to SMOM by $0.5 and received $0.8 million toward our last promissory note. We also received a net advance of $1.0 million from Monaco in January 2018 which was eventually converted to a promissory note. This cash inflow was
partially offset by repayment of debt obligations of $0.2 million. During the fourth quarter of 2018, we issued new equity in an equity offering netting the Company $4.6 million.
General Discussion 2020
At
December 31, 2020, we had cash and cash equivalents of $6.2 million, an increase of $5.9 million from the December 31, 2019 balance of $0.2 million. The operating cash used of $9.3 million was supported by debt proceeds
from 37North, the NAFTA litigation financing and the SBA’s programs for the PPP and EIDL as well as the August 2020 capital raise of $11.3 million noted below. The $9.3 million of cash used from operations was partially offset by non-cash items totaling $1.0 million which include share-based compensation, loss on debt extinguishment accounting and the results of the hybrid-debt agreement fair value accounting.
Financial debt of the company, excluding any derivative, hybrid-debt fair value accounting or beneficial conversion feature components of
such, was $43.2 million at December 31, 2020 and $33.9 million at December 31, 2019.
On August 21, 2020, we sold
an aggregate of 2,553,314 shares of our common stock and warrants to purchase up to 1,901,989 shares of our common stock. The net proceeds received from sale, after offering expenses of $0.3 million, were $11.3 million (See NOTE L).
Since SEMARNAT initially declined to approve the environmental permit application of our Mexican subsidiary in April 2016 and again in October
2018, notwithstanding that the Superior Court of the Federal Court of Administrative Justice (TFJA) in Mexico nullified SEMARNAT’s initial denial, we continue to support the efforts of our subsidiaries and partners to work through the
administrative, legal and political process necessary to have the decision reviewed and overturned in the court of the TFJA. On January 4, 2019, we initiated the process to submit a claim against Mexico to arbitration under the investment
protection chapter of the North American Free Trade Agreement (NAFTA). On September 4, 2020, we filed our First Memorial with the Tribunal. The First Memorial is the filing that fully lays out our case, witnesses and evidence for the Tribunal.
We continue to work diligently and in good faith with Mexico’s current administration to achieve an equitable resolution of this dispute, but we are prepared to proceed with the full NAFTA arbitration process if necessary, see ITEM 1. BUSINESS
OVERVIEW for further detail.
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2019 Compared to 2018
Total revenue $ 3.1 $ 3.3 $ (0.2 ) 6 %
Marketing, general and administrative 5.5 5.7 (0.2 ) 3 %
Total operating expenses $ 13.4 $ 9.3 $ 4.1 44 %
Total other income (expense) $ (5.2 ) $ (3.0 ) $ (2.1 ) 70 %
Income tax benefit (provision) $ 0.0 $ 0.0 $ 0.0 0 %
Non-controlling interest $ 5.1 $ 3.9 $ 1.1 29 %
Net income (loss) $ (10.4 ) $ (5.2 ) $ (5.3 ) 102 %
Revenue
Total revenue decreased by $0.2 million in 2019 as compared to 2018. The $0.2 million decrease is comprised of a $0.3 million
increase in increased marine mineral support services for CIC and an increase in other marine services offset by a $0.5 million reduction related to Magellan’s offshore marine services. See NOTE J for further CIC related party information.
Cost and Expenses
Marketing,
general and administrative expenses decreased $0.2 million from $5.7 million in 2018 to $5.5 million in 2019. This net decrease of $0.2 million was primarily due to (i) a net decrease of $0.8 million in personnel
expenses attributable to regular, incentive and share-based compensation, (ii) an increase of $0.9 million of director compensation at the corporate and subsidiary level (the corporate directors did not receive any cash compensation in
2018), (iii) a $0.1 million decrease in corporate legal support and professional services and (iv) a $0.2 million allocated reduction of corporate overhead support.
For 2019, Operations and research expenses were $7.9 million compared to $3.7 million for the same period in 2018. The variance of
$4.2 million was primarily due to (i) a $3.7 million increase in legal related support of our NAFTA arbitration with the government of Mexico to assure the fair treatment of our foreign investment, see ITEM 1: BUSINESS for more
information, (ii) reductions of $0.1 million and $0.3 million in operational support services and depreciation, respectively, and (iii) a $0.9 million gain on sale of marine equipment that occurred in 2018, but not in 2019.
Other Income or Expense
Total other
income and expense was $5.2 and $3.0 million in net expenses for 2019 and 2018, respectively, resulting in a net expense increase of $2.1 million. This variance was primarily attributable to an increase in interest expense of
$0.8 million from the beneficial conversion feature tied to a promissory note, a warrant inducement of $0.9 million, a debt extinguishment loss of $0.3 million from a debt modification, new 2019 interest of $0.6 million, a fair
valuation loss of $0.3 million on new debt assumed during the three months ended December 31, 2019, and an increase of other income of $0.8 million, which related to the reclassification of our Revenue Participation Rights for our
Cambridge project, see NOTE K for further information. See NOTE H for other debt information.
Income Taxes and
Non-Controlling Interest
We did not incur any taxes in 2019, 2018 or 2017.
Starting in 2013, we became the controlling shareholder of Oceanica. Our financial statements thus include the financial results of Oceanica
and its subsidiary. Except for intercompany transactions that are eliminated upon consolidation, Oceanica’s revenues and expenses, in their entirety, are shown in our consolidated financial statements. The share of
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Oceanica’s net losses corresponding to the equity of Oceanica not owned by us is subsequently shown as the “Non-Controlling Interest” in the
consolidated statements of operations. The non-controlling interest adjustment for 2019 was $5.1 million as compared to $3.9 million for 2018. The administrative support has been ongoing in support
of the legal process in obtaining the environmental application for our Mexican subsidiary. This increase was mainly attributable to the compounding debt interest on our Mexican subsidiary’s balance sheet.
Liquidity and Capital Resources
Summary of Cash Flows:
Net (used) by operating activities $ (5,444 ) $ (6,452 )
Net cash provided by investing activities (16 ) 994
Net cash provided by financing activities 2,876 7,137
Net increase (decrease) in cash and cash equivalents $ (2,584 ) $ 1,679
Beginning cash and cash equivalents 2,797 1,118
Ending cash and cash equivalents $ 213 $ 2,797
Discussion of Cash Flows
Net cash used by operating activities in 2019 was $5.4 million, an increase of $1.0 million compared to the same period in 2018. Net
cash used by operating activities reflected a net loss before non-controlling interest of $(15.5) million offset in part by non-cash items of $1.7 million, which
primarily included depreciation and amortization of $0.1 million, note payable interest accretion of $0.8 million, equity based compensation of $0.8 million and deferred income amortization of $(0.8) million as well as a noncash use
of $(0.7) million for an investment in an unconsolidated entity, loss on debt extinguishment of $0.3 million, a loss of $0.3 million on the debt fair value option and a $0.9 million loss due to a debt modification inducement. Other
operating activities resulted in an increase in working capital of $8.4 million. Changes to accrued expenses, accounts receivable, accounts payable and other assets in 2019 comprised the $8.4 million.
Cash flows used by investing activities for 2019 were $0.01 million compared to $1.0 million provided by for in 2018. The same
period during 2018 includes a payment of $1.0 million from Magellan for the purchase of certain marine assets.
Cash flows provided
by financing activities for 2019 were $2.9 million, which represented $2.8 million of funds received from our NAFTA litigation financing, and $0.5 million debt financing offset by $0.3 million of repayments of financed
obligations. For the same period in 2018, we borrowed the final tranche of $0.4 million from MINOSA, increased our note payable to SMOM by $0.5 and received $0.8 million toward our last promissory note. We also received a net advance of
$1.0 million from Monaco in January 2018 which was eventually converted to a promissory note. This cash inflow was partially offset by repayment of debt obligations of $0.2 million. During the fourth quarter of 2018, we issued new equity
in an equity offering netting the Company $4.6 million.
General Discussion 2019
At December 31, 2019, we had cash and cash equivalents of $0.2 million, a decrease of $2.6 million from the December 31,
2018 balance of $2.8 million. This decrease was mainly attributable to the $5.4 million used for operations offset in part by $3.3 million of financing attributable to the $2.8 million received for the NAFTA arbitration
litigation and $0.5 million received from new indebtedness.
Financial debt of the company, excluding the derivative or beneficial
conversion feature components of such debt, increased by $3.5 million in 2019, from a balance of $30.4 million at December 31, 2018 to a balance of $33.9 million at December 31, 2019. This increase was due to the NAFTA
litigation financing of $3.0 million and the first tranche of the 37North funding of $0.5 million, both of which are discussed above in the Discussion of Cash Flows (see NOTE H).
Since SEMARNAT initially declined to approve the environmental permit application of our Mexican subsidiary in April 2016 and again in October
2018, notwithstanding that the Superior Court of the Federal Court of Administrative Justice in Mexico nullified SEMARNAT’s initial denial, we continue to support the efforts of our subsidiaries and partners to work through the administrative,
legal and political process necessary to have the decision reviewed and overturned.
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Financings
Stock Purchase Agreement
On March 11, 2015, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Penelope Mining LLC (the
“Investor”), and, solely with respect to certain provisions of the Purchase Agreement, Minera del Norte, S.A. de C.V. (“MINOSA”). The Purchase Agreement provides for us to issue and sell to the Investor shares of our preferred
stock in the amounts and at the prices set forth below (the numbers set forth below have been adjusted to reflect the 1-for-12 reverse stock split of February 19,
2016):
Series No. of Shares Price per Share